Pennsylvania Real Estate Investment Trust is a company that specializes in the commercial real estate market. They trade under the stock symbol PRET (formerly PREIT). One look at the lifetime stock price chart of PRET tells a very interesting story–their stock once held an all-time high of almost $725 per share in 2005 and now has plummeted to around $1 per share, as of 2023.
Where did it all go wrong for PRET? Why would a company that was once worth over $5 billion plummet so precipitously, when other players in the commercial real estate market such as First National Realty Partners seem to be doing okay?
Commercial Real Estate Upheaval
Anyone in the United States that’s ventured outside in the last fifteen years can tell you that retail businesses haven’t been doing great. This is a fact made clear by the bankruptcies of several once-vaunted retail giants like J.C. Penney and Sears. These retailers went bankrupt, in part, because they were undercut by the online shopping market.
However, these bankruptcies created ripples across the retail industry that affected smaller retailers. This is because major and smaller retailers were together in one place: shopping malls.
Major retailers are the foundation of most shopping malls in the United States. In fact, they are so essential to the way malls do business, they are what’s known in the industry as “anchor stores.”
Once anchor stores started to go bankrupt and shopping mall companies lost their largest tenants, once gigantic stores sat empty, providing owners zero money in rent.
With the big players gone, shoppers had little reason to visit the mall just for the handful of small stores that might be left. Over time, many shopping malls began to look like ghost towns, as the retail bankruptcies continued. It didn’t take long for shopping malls themselves to go bankrupt after no longer being able to handle their debts.
What Happened at PRET?
As you may have already guessed, Pennsylvania Real Estate Investment Trust was focused almost exclusively on owning and investing in shopping malls, primarily in the eastern United States. Because of the lack of diversification in its portfolio, it was only a matter of time before PRET had the rug pulled out from under it by its creditors. This was primarily due to its creditors realizing they were facing a poor investor equity multiple.
No longer able to make payments and with a steadily declining revenue stream, PRET filed for Chapter 11 bankruptcy in 2020. While the stock still trades, as there is theoretical value in what little holdings the company still does have, it is a husk of its former self.
PRET isn’t alone, and neither is retail. Many commercial real estate companies are under duress, due to the colossal shift in retail and the adjustments to office real estate markets as companies have transitioned to their employees working from home. This leaves little need for the continued construction and maintenance of many office properties and has many investors questioning their valuations.
Does Quality Retail Commercial Real Estate Exist?
Yes–brick and mortar retail stores continue to exist, even if the market has completely shifted. It seems that right now, major companies like Agree Realty and smaller private players like RealtyMogul and its competitors are still doing okay.
These companies invest primarily in retail real estate that is geared toward businesses resistant to online shopping: supermarkets, grocery stores, convenience stores, pharmacies, and stable restaurant brands. A tenant like 7-Eleven doesn’t need to worry about competition from the likes of Amazon because we can’t online shop for our morning coffee and donuts while we’re rushing to get the kids to school.
PRET is a symbol you should keep in mind if you’re headed into real estate investment. They continue to stand as a cautionary tale for anyone looking to make money in that world.